Market Analysis

Technical Pivots

In the spirit of opening the box a bit: Some hopefully educational insights into technical analysis and technical pivots as they are so tremendously important for navigating through these crazy markets. At the end of the day technical analysis is not some magic potion but it’s a tool we use to identify risk vs reward and trade set-ups on the short side as well as the long side, especially also knowing when patterns are invalid and when price pivots indicate a potent shift in direction.

It is an exhaustive topic, hence for the purposes of this article I want to highlight just a few recent examples: And be clear: I’m not promoting technical analysis as a guaranteed solution to everything, patterns shift, news items can render a pattern invalid, momentum to the upside or downside can challenge any technical trader, hence technical analysis is a guide for identifying what’s relevant, what’s not and help traders and investors in their market journey.

Let’s start with a popular stock, $TSLA, which had a monster move over the past year.

I voiced some concerns over it at the beginning of the year with this tweet:

The technical disconnects were awe-inspiring, the stock had moved so far so fast. In the chart I highlighted a monster rising wedge which $TSLA had just hit that day at $880. The wedge was narrowing and concerning especially in context of the vast technical disconnects.

A few days later on January 14 I discussed $TSLA in more detail in a Business Insider article (click image for source article):

Specifically what I said in the article along with the charts included was calling for a monthly 5 EMA reconnect:

$634 was the level at the time and the target to be hit within 6 weeks.

6 weeks came due yesterday. And guess what?

$TSLA dropped to $620 yesterday:

A $260 move down from the original tweet.

And then $TSLA saw this violent bounce off of that price zone. Why? Because it was hitting a key technical support pivot: The monthly 5 EMA. And then what happened? What’s the word? Bang:

An aggressive bounce off of that technical pivot. But note also the concept of confluence. Not only does the monthly 5 EMA reside in this area, but also the weekly middle Bollinger band:

So you had two combining technical pivot points that suggested risk reward was shifting dramatically. Key here is that this level was known 6 weeks in advance because the chart history already said so and highlighted that this areas was going to be key support.

Now $TSLA is enjoying its bounce, but note the larger wedge has broken which is a bearish sign in general, but this is a different story. The key points I wanted to highlight here is that technical disconnects matter, price pivots matter and pattern structures matter as well.

And some of these are tricky as they can become invalidated. Recent example: $SPX formed a classic head and shoulders pattern in the past couple of weeks. I’ve seen many head and shoulders pattern go up in smoke in recent months as markets just relentlessly drifted higher.

Yet this one played extremely cleanly, it had a specific target of 3815 and once that target was reached the risk reward equation had again shifted from the short side to the long side. The specific sequence you can see in these tweets:

$ES ran right back up to the neckline as resistance. Another key example showing how patterns, price targets and pivots are important to identify shifting risk/reward.

How to then determine whether price fails there at the neckline or rips higher? This part is part art, part science with patience being the operative word for key then is to see how the charts evolve.

And by this morning on $ES a well formed potential inverse head and shoulders was forming which suggested a strong possibility of an upside breakout as long as the pattern didn’t invalidate.

Seeing the pattern before the breakout was key. Hence the question:

And what a follow through breakout it has been and there were other factors at play of course as well, hence we can’t keep losing sight of the macro and this week’s macro was dominated by rising yields and of course Jay Powell’s congressional performance something I had highlighted here:

And indeed getting the 10 year to reject near the key technical pivot zone was key for bulls to see happening fora reversal suggested being supportive of a relief rally:

So far mission accomplished as markets are rallying on a reversal of yields off of a key level.

So you see, confluence matters, the different moving parts matter, the pivot points matter and the patterns matter and they help put context to the action.

For without context one can only laugh and shrug at the charts as with the recent price action of the $DJIA:

What is the context of this $DJIA chart? Here you go:

Notable here and supportive of the recent reversal rally was that $DJIA didn’t really correct but just consolidated and now has broken out to new highs. What happens here at this renewed trend line tag remains to be seen, but note the $ES inverse target is higher still.

Moving parts, shifting patterns and risk reward levels. Identifying key technical pivots. It’s all part of the journey that makes technical analysis not only challenging, but also fun and rewarding.

All content is provided as information only and should not be taken as investment or trading advice. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. For further details please refer to the disclaimer.

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7 replies »

  1. Good Chart work but we bounced as Powell did his talk then Q&A that followed. Sven It is clear he owns this market as just him talking down the 10year rate is all it took add in he will print till the cows come home and he has not seen them yet! LOL Add in he holding rates low till employment comes back so at 500g a month is will take to 2024 same as to QE. BTFD is the trade just that simple like we saw YTD then 20dma squeeze add in today retest of 20dma SPY and hard 1:00 buy program again like Tue time stamp HFT to push to 8dma and herd chases> Sven till math matters and PE are some how real? We look to make new highs. Powell is afraid as he will not let the tape fall or stay below the 50dma QQQ SPY touch. The idea of him saying there is no bubble knowing it is a lie, but of coarse he is trapped and understands he could never tell the truth as the house of card would come falling down. I do love your work and see what you do. But we can only trade the chart patterns now that PE do not matter any more? Just the truth is all. But if you open any month chart IWM QQQ SPY we never see such moves makes 1999 look OK? I do think the market is all they have as the world is a mess with so many lies and how the Biden program is unfolding here is scary. Good hunting Brother!

  2. Perhaps the underlying truth is: the big hands that play the markets understand technical analysis, Elliott wave, macro economics, liquidity effects, orderflow, news and social media chatter etc, ect… and have trained their AI trading programs to take advantage of all these (and probably more) to identify likely short term turning points and trends, and use them to their advantage. It’s like a kind of self fulfilling prophecy.

    The sad fact is they are much faster, have more data, see more and are probably smarter at this than any of us will ever be. Maybe our best strategy is to second guess what is likely to move them and trade accordingly. Sven is probably one of the very best at TA publically available online and it’s a very useful part of the picture.

  3. Jws puppet, Jerome Powell, reinvented the TA, lol, by printing trillions as Covid excuse, and making legal the market manipulations without any punishment of any kind.
    Can`t belive this guy still there, maybe is because his Jw friends protect him against the humanity.
    Unless citiiznes march against this Jw-Fed cabal, but people too ignorant and coward to do it.

  4. A break below 128.23 in XLK tomorrow or Friday will represent the right neckline of a head and shoulders top and the completion of a wave 5 down (or wave 1 on the larger time frame). We’ll then get a wave 2 on the larger time frame to form the right shoulder of the head and shoulders top in XLK.

  5. Just reading this on February 25 where it now looks like the 10 year reversed back through your .382 Fib line. Identifying these pivot points has been a challenge technically since March 2020.

  6. I’m bullish commodities and your technical analysis is unparalleled to “ Wall Street” jaw boning”!I made a fortune 💰


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